Coffee Breakthrough

(The following is a guest post from a self-described coffee addict who prefers to remain anonymous)

My buddy Dave became a multimillionaire in the dot-com days. We were best friends before he got rich, and we still are, so I see him often. It took him years of hard work to earn his “sudden” wealth, and he’s completely unchanged, except for his occasionally head-turning insights about money—and his brand-new espresso machine.

Dave and I always talked about money the way other guys talk about sports or cars. We compared salaries, investments, retirement plans and everything else, but without the headache-inducing one-upmanship men are prone to when revealing incomes. It’s even more fun to talk money with Dave these days; he’s the same unassuming guy, even while he’s operating on a higher plane of financial existence; all his numbers now have at least one more zero than mine.

At his house the other day, Dave surprised me by asking if I wanted a homemade latte. Dave hadn’t been much of a coffee drinker until he moved to Portland, a habit I’ve kidded him about. He’s succumbed wholeheartedly to the Northwest’s trademark elixir.

We went into his kitchen, where he proudly displayed his brand new, Swiss-made, fully automatic espresso machine, for which he’d slapped down a cool $945 at an online store called WholeLatteLove.com.

It must be nice to be able to afford a high-end, fully automatic espresso maker, I mused aloud. Dave’s response snapped me to attention.

“Actually, I can’t afford not to own one,” he said.

I thought he was joking, and asked what he meant.

“Think of it this way,” said Dave. “Do you and your wife drink at least one double latte each a day?”

That level of consumption is barely above survival threshold, I admitted.

“OK, consider this: One double latte costs three dollars at a coffee shop, so your outside coffee-drinking habit comes to six dollars a day for you and your wife. That’s $2,190 per year in after-tax dollars,” Dave extrapolated. “Assuming you’re in the 27 percent tax bracket, that means you have to earn $3,000 before taxes to pay for those lattes. That’s more than a month’s wages for a substitute teacher here in the state of Oregon.”

Dave’s last remark nearly made me gag—until recently, I had been considering a career change into education. Would I have to put in a full month of work just to keep my family in coffee for the year if I became a schoolteacher?

“But make coffee drinks yourself,” Dave went on, “and you save a bundle.”

He walked over to the gleaming machine and asked if I wanted a quadruple espresso with a brownie for dessert. He had to ask?

“You can buy a gallon of organic whole milk in Portland for $4.99,” Dave said, touching a button. The device whirred, hiccupped, ground a precise measure of chocolate-colored beans, then burped a few times as it forced creamy, deep-brown espresso through twin nozzles into a waiting cup.

Dave passed me the behemoth espresso and the promised brownie.

“At one cup of milk per latte per day, your cost of milk comes to only $20 per month,” he went on. “And coffee beans are cheap. This organic Italian espresso was $11 a pound, and I doubt we’ll go through two pounds in 30 days. But, to be conservative let’s say our total cost of goods is $45 a month, including cleaning tablets for the Jura. That’s one-fourth of the $180 you would spend at coffee shops. Plus, it’s all organic.”

Grabbing a calculator, I figured aloud that I could spend $1,000 on an espresso machine, recover the cost in the first year, and still come out nearly $700 ahead compared to buying lattes at retail.

“That’s right,” said Dave. “After running my own company, I can’t help calculating the cost of everything, including operating a household. Frankly, I simply cannot afford not to make my own lattes. Besides, it’s fun, the drinks are better, and I can treat my friends.”

We drank to that. Then it was back home to convince the wife that we, too, simply can’t afford not to become our own baristas.

Sorry, there’s no replacing the barista’s touch. I prefer a semi-auto machine for that reason.

On Dec 18, 2008, JM commented:

Did you know that tea costs less that 5 cents per cup to brew? And you actually get lots more health benefits (minerals, B vitamins, antioxidants, etc….) AND you get your caffeine, too. And in these economic times, tea sounds much better to me.

@baristo: Fair enough! Those still indulging, take note (geez, I crave coffee, but so far am staying the course …)

@JM: I’m with you. I’m quaffing three cups of Irish Breakfast per day (40 bags for $1.99, both caffeinated and uncaffeinated), and enjoy the occasional Earl Gray, too. Definitely cheaper than coffee. I sweeten with soy milk and honey.

@alex: I’m informed that this is not marcom, just enjoyment of a clever name, but you may believe what you like. I can, however, say with complete authority that Soul Shelter has no paid advertising and no associates-type agreements except with Amazon.com and Powell’s. We are not quite yet at the media juggernaut level

On Dec 18, 2008, Dwight commented:

@Tim: I didn’t make it to the desert before summer, so I read your book while camping in the mountains. I enjoyed it. Thanks for writing it.

On Dec 19, 2008, Hank commented:

One of my mantras this year has been, “Just do the Math.” You can perform an annual consumption/expenditure equation on a whole host of things. The trick, it seems, is being disciplined enough in one’s habit patterns and desires to respond rightly to what we know about the annual cost. It also helps to keep your eye on the big investments you desire to make. Once you buy the big thing you need, there’s less discretionary cash available to fritter away on the frivolous.

On Dec 19, 2008, by Tim commented:

@ Dwight: Thanks for the kind words. Make sure to check out Mark’s Green Age when you have the chance.

@ Hank: Spot on. Like my grandfather, I record every expenditure I make, every day (though I don’t detail it in a diary like he did: “Bag of two-penny nails, four cents”). The wife tallies up everything monthly and we compare it to budget. It’s amazing how this illuminates not just finances but our values.

On Dec 19, 2008, Meghan commented:

I’ve been one to only by coffee from a cafe. I’ve always just paid about $8 for a LARGE tub that lasts my boyfriend and I about t months, plus a pound of sugar that lasts about 6 months for $1 and the $3 creamer once a month. So about $12 a month versus $150 to go have someone else make it? No thanks and the $125 is assuming you only get one $5 coffee per business day! Forget all that, the money, the time in line, no thanks.

Unfortunately, your friend Dave is an idiot. He’s adopting math in complete isolation of human behavior. Because if these were correct assumptions, the massive switch from full-sugar sodas to diet soft drinks in the 80’s and 90’s should have lead to a nation of underweight skinny people, but instead we’re more obese than ever. And any person who subscribed to abstinence as a method of birth control would never become pregnant.

* The #1 cost in retail coffee goes to labor. That’s labor you have to pick up yourself. And as Americans have proven whenever we buy pre-sliced apples and pre-sorted tossed salads by the bag, we’re lazy and are always willing to pay more to have someone else do the labor for us. Somehow, Dave thinks this laziness magically disappears when it comes to coffee.

* Most home espresso machines are lousy and overpriced compared with their retail cafe counterparts. Unless you have no taste buds for coffee, you won’t save any money.

* Because most home espresso machines are the home exercise treadmills of the past decade, most people who buy home machines end up worse off financially than they started. Because now they are stuck with a massive capital outlay they cannot recoup their spending on after hundreds of cups, the thing is gathering dust in the corner of their kitchen, and the consumer is back in line at their favorite café.

On Dec 19, 2008, by Tim commented:

@greg: Wow! We’ll see if we can get Dave to weigh in on these provocative thoughts. Thanks for writing! Tim

On Dec 20, 2008, dana commented:

Author Terry Pratchett referred to this as the “boots” economical theory. It goes like this: a rich man buys fifty dollar boots that lasts for ten years. A poor man buys ten-dollar boots that last for barely one year. Thus the poor man winds up paying twice as much, and still getting wet feet.
When you’ve got money, you can buy things that save you money, whether by getting services for yourself rather than paying each time (much like having a car vs. taking taxis all the time) or by getting something of higher quality that lasts longer and works better.

@Greg: I think that’s a bit harsh and unfair to Dave, I don’t think it matters what human behavior says, it only matters what HIS behavior is in this case. Maybe buying an espresso machine would be horrible for me even though the math is the same because of my behavior is different.

@ Jim: This is one of the oldest, and shallowest, personal finance guru wannabe platitudes going of the past 5 years. And I hate seeing people buying into this bogus math, finding themselves poorer on the other end.

Unfortunately the math is a sham because it works fine in isolation, completely insulated from the realities of human behavior. And no person acts like a spreadsheet in real life.

There’s a great irony in his quote about “wages for a substitute teacher here in the state of Oregon”, because he mentions the issue of labor and completely fails to see the absence of labor costs in his calculations: labor costs that the home espresso machine owner has to commit to regularly that they had not entertained prior.

When you pay some ridiculous $4 for a retail latte, most of that money is going to labor — *not* supplies nor equipment. We could all save a few bucks changing our own motor oil and churning our own butter too while we’re at it, but we largely don’t — and for good reasons.

The math only needs to work in isolation, the behavior of Dave, for it to make sense. Not everyone should buy an espresso machine, but it made sense for Dave, someone who was paying the ridiculous $4.

As for labor, it’s a wash. You can make the espresso yourself at home or you can drive to someplace, buy it, and then go wherever you’re going.

It sounds like you have a vested interest in people going to coffee houses, otherwise would need ratings guide?

On Dec 22, 2008, heather commented:

I used to work for a certain upscale kitchen store located in the portland area thst has been selling jura espresso machines for years. This article is almost exactly the sales pitch that we used. & it’s true. Greg doesn’t seem to appreciate the ease of use involved with these newer machines. While, admittedly, there are some poor quality machines on the market; the jura is not one of them. Easy to use and quality brewing. Check them out at kitchen kaboodle.

On Dec 23, 2008, xslave commented:

impressa s8 jura capresso swiss made enough said

On Dec 24, 2008, Mike commented:

What you are also paying for at a coffee shop, besides the java, is a place to either socialize or to get some work done, or just sit and chill-ax out of the house. Compare the price of a cup of coffee to that of renting an office, or frequenting bars or nightclubs. Coffee shops are a comparatively cheap way to get out of the house. J.K. Rowling wrote her Harry Potter books at a coffee shop because that was the only place she could afford to spend a lot of time in. That being said, I live next door to a great coffee but never go as I also have an espresso machine =P

But I usually make 8 cups, requiring the same labor, totaling $1.71 making it $0.21 per cup.

Espresso Machine $ 0.00 (gift)
Grinder $10.00
French Press $20.00
Electric Kettle $20.00
Good thermal carafe $30.00
=======
$80.00 over at least 5 years is $16 a year for equipment
Since I make coffee 5/7 of 365 days, it costs about $0.06 in equipment every day I make coffee.

If I felt I needed expensive equipment or only had a cup or two a month, I would perhaps only go to a cafe and not make coffee at home.

@Greg: I think it’s invalid to compare owning an espresso machine to making your own butter. Butter would cost more to make than buying it. A better analogy would be eating out vs. cooking at home, or paying for lawn care instead of doing it yourself, I think.

I own a pretty extensive home espresso setup and I make far better espresso at home than I can get out. But then I am a bit obsessive and represent probably 1% of all home espresso machine buyers (I roast my own green coffee beans at home for freshness, etc.).

But most people I know who buy machines end up with the home exercise treadmill problem. It consumes them for a few weeks. But then they get lazy, they prefer the coffee others make for them, and they end up more in debt than they started. This is the tragedy of this advice, and it’s the most common outcome I’ve seen.

And from my own testing, Juras are one of the worst, however. They are ridiculously overpriced for the value of the espresso they produce — I never advise someone to get a Jura under any circumstances. You can get better coffee, just as convenient, from home machines less than a third of their price.

As for a vested interest, just look at all the ad money I’m raking in. No, but seriously — I do that because I’m an obsessive and want to see better coffee available to everyone. To see the standard bar raised and help inform consumers to be aware of what better standards can be.

But with so many people hurting in the current economy, nothing burns me up more than to see them being taken advantage of by simplistic personal finance guru wannabes who spew platitudes and yet have no accountability for all the disappointment and financial loss they create.

Btw, if you still don’t believe my observations, I suggest you ask any Starbucks employee about customers who come in and buy home machines there. Nine times out of ten, these employees see the home espresso machine buyer regularly back in line after a few weeks of their failed “experiment”.

On Feb 24, 2009, EvonYett commented:

There May not be Wealth and There Is A Great
Love For Espresso and Regular Coffee, and
Would Love To Start My Own Coffee Franchise
and Business Different From Starbucks and
Duncan Donuts. Any Suggestions?

[...] the archives at Soul Shelter (a great blog), I came across an older article that tries to explain why millionaires buy espresso machines. The point? It’s okay to spend for quality and value, especially if it will reduce costs in [...]

On Feb 24, 2009, Terrin commented:

Not a completely fair comparison. Sure, most of the coffee shop’s costs are labor. However, I spend quite a bit more in time and labor getting to the coffee shop then I spend merely on buying the coffee. For instance, it takes me ten minutes to drive to a decent coffee shop. Ten minutes to drive back in the other direction. That is twenty minutes to get my Joe on top of the time I wait to get it. On top of that, I pay for the gas to get there. My problem might not hold true for you if you live next store to a good coffee shop, but I suspect for many people the issue is valid.

The good machines cost a lot. However, most require you to merely push a button to have your brew. I don’t own such a machine, but I have a friend who does. If you buy good coffee, the coffee is better then most coffee shops, and a tremendous amount of time is saved by avoiding traveling to the coffee shop to buy the daily cup of joe.

For what it is worth, it takes me fifteen minutes to change my own oil. I save half the cost of what the shops charge me, I use better oil, and I don’t have to wait the fifteen minutes having somebody try to sell me services I don’t need or want.

Gregg write, “When you pay some ridiculous $4 for a retail latte, most of that money is going to labor — *not* supplies nor equipment. We could all save a few bucks changing our own motor oil and churning our own butter too while we’re at it, but we largely don’t — and for good reasons.”

On Feb 25, 2009, by Tim commented:

I think we can all agree that many people derive real utility (out-of-home workspace, change of scene, meeting space) or pleasure (excellent coffee, socialization, atmosphere) from visiting coffee shops. I certainly do, even though I don’t drink coffee anymore (at least not since August 2008; wish me luck in staying on the wagon!).

The writer’s point is that such a high-end machine makes sense for people like Dave, who don’t necessarily derive the same utility or pleasure from coffee shop visits.

And I can attest to Terrin’s point that good beans used in a home espresso machine makes better brew than what you get at many coffee shops (though it can’t touch what they serve at Common Grounds, Powell’s, Sound Grounds, etc., sigh — man, I’d like to drink some coffee right now … )

I don’t have any commercial connection to any coffee machine maker, but I can say that Greg’s flat-out wrong. There are home machines for under $2000 which will absolutely make you espresso coffee that’s as good as you’d get from Starbucks or your local favorite cafe. In fact, I’ve had coffee made by professionals that was much worse than I make at home.

And no, a $20 stovetop unit doesn’t do the trick. You need a machine with a pump and a temperature regulator to get the pressure and temperature just right.

The other secret is that you absolutely must buy fresh beans. The difference between beans roasted yesterday and beans roasted a week ago is night and day.

On Feb 25, 2009, Jamie commented:

Greg, I believe that you’re a bit too invested in your own point of view being correct to see the trees for the forest.

In my own experience I’ve saved substantially by investing in a decent home machine. I’ve been a barista in the past and find that I can make comparable drinks at a substantial savings. There’s really not much labor to it.

I don’t roast my own beans. Grinding whole beans and running the machine honestly doesn’t take much longer than using a french press.

It makes perfect sense to spend a bit more on something that will save you in the long run and last. I’m too poor to buy cheap.

My initial investment paid for itself within a few months and has saved me a great deal since then.

I’ve even taken it a step farther (this might seem a bit much to some). I’ve recently purchased a soy milk maker. It’s easy to use, versatile and is going to save me a bunch. Not only can I make my own soy/rice/nut milk; I can also make any mock dairy product that I’d like and my own tofu (which turns out amazing).

Perhaps it’s a stretch for some but changes like this allow me much needed financial room to breathe. (Not to mention much more rapid debt reduction….)

[...] the archives at Soul Shelter (a great blog), I came across an older article that tries to explain why millionaires buy espresso machines. The point? It’s okay to spend for quality and value, especially if it will reduce costs in [...]

On Mar 10, 2009, Peter commented:

This misses the point; I never drink coffee at home unless a guest requests it and I have an Italian stove-top machine.

I regard coffee drinking as a part of the social experience; I like to sit in a cafe, chat with friends and observe the passing world. I am a boulevardier.

Most things can be done more cheaply, and often better at home – eating gourmet meals for instance; but there is more to going out than just the consumption. Get a life.